Wednesday, October 10, 2012

Rio Tinto plc (ADR)(NYSE:RIO), international
miner has cut its growth forecast for China saying that it was making efforts
to cut costs having already slashed $500 million. It has experienced an
uncertain international outlook.

Rio Tinto is the second largest iron ore
miner in the world, having over 80% of its earnings in 2012 predicted to come
from the material, is immensely dependant on Chinese steel stipulate picking up
and is relying on Chinese infrastructure spending plans to impel the demand.

Tom Albanese, CEO of Rio Tinto said on
Tuesday that important stimulus efforts have been declared in the US, Europe
and China. However, it is uncertain exactly when the effect of these will be on
the markets. Considering the uncertainty and the considerable fluctuations in
prices in recent times, the company seems to be more cautious on the outlook
over the upcoming quarters.

Rio Tinto has cut its forecast for Chinese
economic growth to just below 8% from 8% initially, at par with the
International Monetary Fund’s amended forecast on Tuesday. Rio stated that
economic growth in China is healthy but moderating and is slow and bumpy in developed
economies.

Costs of iron ore plunged 42% from a high in
April to a three year low of $87 a metric ton previous month. While they have
come around to $110, costs are still below a perceived floor at $120, the level
at which high cost Chinese producers would lose money.

As per estimation of Rio, around 100 million
metric tons of Chinese iron ore production had become unprofitable. Rio said
that it sees signs of curtailment of a large proportion of the production.

The comments came ahead of a briefing on the
firm’s copper business that has a brighter near term stance. However, it has
flagged its most recent project, the enormous Oyu Tolgoi copper and gold mine
in Mongolia, as the one that may be deferred due to prolonged discussions with
China over power supply to the mine.